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ch1 Key

1. is a traditional service provided by banks in which the banks store the valuables of their customers and certify their true value.

Safekeeping of valuables and Certification of Value

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2. The fact that financial institutions monitor the financial condition of their borrowers by serving

only as an agent on behalf of depositors is the banking.

delegated monitoring

theory of

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3. refers to when a financial institution trades one form of currency for another. An example of this would be when the bank trades dollars for yen.

Currency exchange

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4. A(n)

is a traditional service which permits a depositor to write a

draft in payment for goods and services.

demand deposit (checking account)

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5. is a service provided by banks where the bank lends money to individuals for the purchase of durable and other goods.

Consumer lending

6. The

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of a bank is a traditional service where the bank manages

the financial affairs and property of individuals (and in some cases businesses).

trust services

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7. Companies such as Merrill Lynch and Sears which offered some but not all banking services in the 1980s were called

nonbank financial firms

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government deregulation

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9. is an alternative to lending in which the financial institution purchases the equipment and rents it to its customers.

Equipment leasing services

10. The

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is a landmark act which allows financial service

providers to offer an expanded menu of financial services for the customer. This law allows banks to truly become conglomerate financial service providers.

Financial Services Modernization Act (Gramm-Leach-Bliley Act)

11. The country with the most banks is

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the United States

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12. According to Congress, a

is defined as any institution that can qualify for

deposit insurance administered by the FDIC.

bank

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13. A bank which spans regions, nations, and continents, offering the widest menu of financial

services is known as a

money-center

bank.

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14. refers to the movement of businesses across industry lines in order to broaden its base.

Convergence

15. Banks which serve primarily households and small firms are known as

retail

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banks.

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16. Banks that sell deposits and make loans to businesses, individuals, and institutions are known

as

banks.

commercial

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17.

Banks which underwrite issues of new securities on behalf their corporate customers are

known as

banks.

investment

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18. Banks which function under a federal charter through the Comptroller of the Currency in the

United States are known as

national

banks.

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19. Banks which supply both debt and equity capital to businesses are known as banks.

merchant

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20. A bank that offers its services only over the Internet is known as a(n)

virtual bank

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21. When a local merchant sells the accounts receivables they hold against their customer to a bank this generally known as

discounting commercial notes

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22. A(n)

offers loans to commercial enterprises (such as appliance dealers) and to

individuals and families using funds borrowed in the open market or from other financial institutions.

finance company

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23. A(n)

buys and sells securities on behalf of their customers and for their own

accounts. Examples of this type of financial service provider include Merrill Lynch and Charles Schwab.

security broker (or dealer)

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24. A(n)

sells shares mainly to upscale investors in a broad group of different kinds of

assets including nontraditional investments in commodities, real estate, loans to new and ailing companies, and other risky assets.

hedge fund

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25. When a bank agrees to handle the cash collections and disbursements for a company and invest any temporary cash surpluses in interest bearing assets, they are providing services to their customers.

cash management

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26. Under U.S. federal law, an institution making only loans to households and offering uninsured checkable deposits and savings deposits qualifies as a commercial bank.

FALSE

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27. Nonbank financial-service institutions can offer deposits to the public, but these deposits are not eligible for insurance coverage by the FDIC.

FALSE

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28. The etymological roots of the word "bank" trace this word back to an Italian term referring to a "money-changer's table".

TRUE

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29. According to the textbook, the largest banks tend to offer the widest range of services of any financial-service firm today.

TRUE

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30. According to the delegated monitoring theory, the bank serves as an agent on behalf of its depositors, monitoring the financial condition of those customers who receive loans from them.

TRUE

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31. Managing the financial affairs and property of individuals and business firms falls under the type of banking service line known as cash management services.

FALSE

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32. The role performed by banks in the economy in which they transform savings into credit is known as the intermediation role.

TRUE

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33. The role performed by banks in which they guarantee to make payments on behalf of their customers when those customers are unable to pay a debt obligation is known as the guarantor role.

TRUE

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34. When banks serve as conduits for government policy this is referred to as their agency role.

FALSE

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35. According to the textbook, high-volume transactions are required to make efficient use of automation and other technological innovations.

TRUE

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36. The number of independently owned banks has risen in the United States over the last decade.

FALSE

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37. Money-center banks usually service local communities, towns, and cities, offering a narrow menu of services to the public.

FALSE

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38. A greater proportion of major corporations have deserted the banking system in recent years to raise borrowed funds directly from the open market.

TRUE

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39. The recent erosion of the banking market share relative to other financial institutions means that banking is a dying industry.

FALSE

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40. Lending institutions act as delegated monitors and can diversify and reduce their risk exposure, resulting in increased safety for savers' funds.

TRUE

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41. Current theory suggests that banks exist because of imperfections in our financial system.

TRUE

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42.

According to the textbook, traditional banking may be on the decline.

 

TRUE

 

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43.

Convergence refers to the fact that the number of bank mergers has increased in recent years.

FALSE

 

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44.

Banks which offer virtually all financial services are known as universal banks.

TRUE

 

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45.

Banks have now expanded their service offerings into providing investment banking, insurance protection, financial planning, and other services rather than restricting themselves to traditional financial services.

TRUE

 

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46.

In the United States, a commercial bank qualifies as a "bank" under federal law if it offers:

 

A.

consumer installment loans, CDs.

B.

trust services, commercial loans.

 

C. checking accounts, commercial loans.

D. security investments, inventory loans to business custo

E. commercial deposit accounts, consumer savings plans

 

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47.

J.C. Penney, and Sears provided are among leading firms that in the 1980s organized competitors with banks that are known as:

A.

nonbank financial- service institutions.

B.

discount security companies.

C.

savings institutions.

D.

credit unions.

E. commercial banks.

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48.

A study of history shows that one of the first services offered by banks was:

A.

equipment leasing.

B.

currency exchange.

C.

security brokerage and underwriting.

D.

sale of real estate.

E.

None of the options are correct

 

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49.

Banks perform the indispensable task of:

A.

creating money without making loans.

B.

absorbing the excess liquidity created by other financia

C.

intermediating between surplus-spending parties and d

D.

issuing risky deposits.

E.

None of the options are correct

 

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50.

The view that depositors hire banks to analyze the financial condition of prospective borrowers and continually evaluate the condition of outstanding loans is referred to as:

A.

delegated monitoring.

B.

the concept of financial intermediation.

C.

the liquidity function in banking.

D.

market imperfection theory.

E.

the efficiency contribution of banking.

 

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51.

Which of the following has been an important trend regarding consolidation and geographic expansion in banks?

A.

Increased bank

branching activity

B.

The formation of more holding companies to purchase

C.

Mergers among some of the largest banks in the indus

D.

Significant rise in the average size of individual banks

E.

All of the options are correct

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52.

Included among leading structural trends in the U.S. banking industry in recent years are:

A.

the number of independentl owned banks has declined.

B.

the average size of individual banking firms has increa

C.

entry across state lines from neighboring states has inc

D.

the mergers among some of the largest banks in the in

E.

All of the options are correct.

 

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53.

Smaller, locally focused commercial and savings banks that offer narrower but more personalized menu of financial services are known as:

A.

money- center banks.

B.

community banks.

C.

mutual funds.

D.

state banks.

E.

fringe banks.

 

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54.

The banking services that include marketing new securities to raise funds for corporations and other institutions is referred to:

A.

comprehensiv e packaging.

B.

wrap-around accounts.

C.

investment banking.

D.

professional banking.

E.

None of the options are correct.

 

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55.

A bank that wires funds for the purchase of a

beach house in South Carolina for a customer in

Oklahoma is carrying out the banks.

of

A.

intermedia tion role

B.

payment role

C.

guarantor role

D.

agency role

E.

policy role

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56.

Examples of imperfections in the financial system which allow banks to exist include which of the following?

A.

Informational asymmetry

B.

Efficiency of markets

C.

Divisibility of assets

D.

Adequate liquidity

E.

All of the examples are of the imperfections that exist.

 

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57.

A bank which manages the investment portfolio and pays the bills of an elderly customer who is unable to do it for him or herself is carrying out the of banks.

A.

intermedia tion role

B.

payment role

C.

guarantor role

D.

agency role

E.

policy role

 

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58.

Which of the following is not a current trend in the banking industry?

A.

The number of banks is declining

B.

The number of bank branches is declining

C.

The number of bank services is increasing

D. The number of bank competitors is increasing

E. Bank industry convergence

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59.

Which of the following types of banks would most likely offer the largest number of financial services virtually?

A.

A retail bank

B.

A community bank

C.

A commercial bank

D.

A universal bank

E.

An international bank

 

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60.

The phenomenon of convergence refers to:

A.

financial service firms expanding into other produc lines.

B.

firms reducing their product lines.

C.

bank merger activity.

D.

globalization in banking.

E.

technological innovation in banking.

 

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61.

Bank equipment leasing activity involves:

A.

a bank leasing its office facilities instead of buying.

B.

a bank buying equipment and then leasing the item to

C.

a customer buying equipment and then leasing it to a b

D.

a bank leasing computer equipment.

E.

None of the options are correct.

 

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62.

Wholesale banks are those banks that:

A.

sell at a discount relative to all commercial banks.

B.

only make loans to the wholesale industry.

C.

lend almost exclusively to farmers.

D.

serve corporations and government.

E.

have only retail customers.

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63.

Jonathan Robbins has an account in a bank that does not have a physical branch. Jonathan does all of his banking business over the Internet. What type of bank does Jonathan have his account at?

A.

Virtual Bank

B.

Mortgage Bank

C.

Community Bank

D.

Minority banks

E.

None of the options are correct.

 

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64.

The Edmond National Bank serves only the City of Edmond, Oklahoma and concentrates on providing the best possible service to this city. What type of bank is this most likely to be?

A.

Virtual Bank

B.

Mortgage Bank

C.

Community Bank

D.

Bankers' banks

E.

None of the options are correct.

 

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65.

The Charleston Southern Bank makes loans for families to purchase new and existing homes but does not take deposits. What type of bank is this most likely to be?

A.

Virtual Bank

B.

Mortgage Bank

C.

Community Bank

D.

Merchant banks

E.

None of the options are correct.

 

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66.

Which of the following is considered a fringe

bank?

A.

Communi ty Bank

B.

Wholesale Bank

C.

Merchant Bank

D.

Payday Lender

E.

None of the options are correct.

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67.

During the middle ages, banks encountered religious opposition because:

A.

loans to the poor often carried high interest rates.

B.

loans and deposits were primarily for wealthy customer

C.

the Industrial Revolution demanded new methods of m

D.

savings and wealth were lost due to war, theft, and exp

E.

All of the options are correct.

 

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68.

Religious opposition decreased during the Renaissance because:

A.

loans to the poor often carried high interest rates.

B.

loans and deposits primarily consisted of wealthy custo

C.

the Industrial Revolution demanded new methods of m

D.

savings and wealth were lost due to war, theft, and exp

E.

All of the options are correct.

 

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69.

Banks like the Medici Bank in Italy and the

Hochstetter Bank in Germany were successful

because these new needs.

and they responded well to

A.

the poor needed loans at high interest rates

B.

primarily wealthy customers needed loans and deposit

C.

the Industrial Revolution demanded new methods of m

E. All of the options are correct.

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70.

Early European banks were places for safekeeping of wealth because:

A.

loans to the poor often carried high interest rates.

B.

loans and deposits were primarily for wealthy customer

C.

the industrial revolution demanded new methods of ma

D.

savings and wealth were lost due to war, theft, and exp

E.

All of the options are correct.

 

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71.

The U.S. government wants to prevent money laundering by drug cartels. To promote this goal, they have asked banks to report any cash deposits greater than $10,000 to the government. Which of the following roles is the bank performing?

A.

The

 
 

intermediatio

n

role

 

B.

The payments role

 

C.

The risk management role

D.

The guarantor role

E.

The policy role

 

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72.

The Edmond Wine and Cheese shop wants to buy 30 cases of French Champagne on credit. Bank of America writes a letter of credit stating that the Edmond Wine and Cheese shop is a good risk and that if they do not pay off the loan, Bank of America will. Which of the following roles is the bank performing?

A.

The

intermediatio

n

role

B.

The payments role

C.

The risk management role

D.

The guarantor role

E. The policy role

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73.

Alexander Phua goes to his local bank and gets an insurance policy that protects him against loss in case he is in a car accident. Which of the following roles is the bank performing?

A.

The

 

intermediatio

 

n

role

 

B.

The payments role

 

C.

The risk management role

D.

The guarantor role

E.

The policy role

 

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74.

Chris Jones gets a cashier's check from Wachovia Bank to make his down payment on a new home. Which of the following roles is the bank performing?

A.

The

 

intermediatio

 

n

role

 

B.

The payments role

 

C.

The risk management role

D.

The guarantor role

E.

The policy role

 

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75.

The Bank, N.A. accepts deposits from thousands of individuals and lends that money to (among others) the Stillwater Body Shop to expand their work bays. Which of the following roles is the bank performing?

A.

The

intermediatio

n

role

B.

The payments role

C.

The risk management role

D.

The guarantor role

E.

The policy role

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76.

Major trends affecting the performance of financial firms today include all of these except:

A.

greater product- line diversification.

B.

reduced branching.

C.

geographic diversification.

D.

convergence.

E.

increasing automation.

 

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77.

The First National Bank of Lakeland makes risky loans to businesses to expand and grow their businesses while at the same time issuing low-risk securities to their depositors and other fund providers. Which of the following services is this bank offering to their customers?

A.

Risky arbitrage services

B.

Liquidity services

C.

Delegated monitoring services

D.

Divisibility of money services

E.

Credit services

 

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78.

Jonathan Wynn knows that if he wanted to purchase a Treasury Bill, the minimum amount he would spend would be close to $10,000. He also knows that he could deposit $1,000 in a money market deposit account at a bank and earn about the same rate of interest. Jonathan does not have $10,000 to invest in a Treasury Bill. If Jonathan puts his money in the bank, which service that a bank can provide, is he taking advantage of?

A.

Risky arbitrage services

B.

Liquidity services

C.

Delegated monitoring services

D.

Divisibility of money services

E.

Credit services

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79.

Nick Rodr gets a loan from the First State Bank of Guthrie to purchase a new refrigerator for his condo. What service that a bank provides is he taking advantage of?

A.

Risky arbitrage services

B.

Liquidity services

C.

Delegated monitoring services

D.

Divisibility of money services

E.

Credit services

 

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80.

Drew Davis goes to his local bank to get help developing a financial plan and making investment decisions. Which of the more recent services banks offer is Drew taking advantage of?

A.

Getting a consumer loan

B.

Getting financial advice

C.

Managing cash

D.

Getting venture capital services

E.

Buying a retirement plan

 

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81.

The Bartholemew Bakery receives a lot of payments in cash. They deposit it in their local bank who invests the money in an interest bearing account until it is needed to pay bills. Which of the financial services banks offer, is the Bartholemew bakery taking advantage of?

A.

Getting a consumer loan

B.

Getting financial advice

C.

Managing cash

D.

Getting venture capital services

E.

Buying a retirement plan

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82.

MyWebCast is a new company that makes it easy for individuals to create streaming videos on the Internet to share with friends and family for a small fee. MyWebCast wants to expand their offerings of video streaming services but needs cash to be able to do this. The Second National Bank of Oklahoma City, through a subsidiary, gives them the cash they need for an ownership share in the company. Which of the more recent services that banks offer is MyWebCast taking advantage of?

A.

Getting a consumer loan

B.

Getting financial advice

C.

Managing cash

D.

Getting venture capital services

E.

Buying a retirement plan

 

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83.

Chandriga Suppiah has opened a Roth IRA with North Carolina State Bank and plans on making regular contributions to this account until she retires. Which of the financial services is Chandriga taking advantage of?

A.

Getting a consumer loan

B.

Getting financial advice

C.

Managing cash

D.

Getting venture capital services

E.

Buying a retirement plan

 

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84.

The principal functions and services offered by many financial-service firms today include:

A. lending and investing money.

B. making payments on behalf of customers to facilitate th services.

D.

assisting customers in raising and investing funds profi

E. All of the above.

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85.

Which of the following is considered a depository financial institution?

A.

Mortgage company

B.

Private pension funds

C.

Savings and Loan associations

D.

Money market funds

E.

Insurance company

 

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86.

Which of the following is not a purpose of bank regulation?

A.

Guarantee minimal profitability of the banking system

B.

Provide monetary stability

C.

Ensure safety and soundness of banks

D.

Provide competitive financial system

E.

Protect consumers from abuses of banks

 

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87.

During the financial crisis of 2007-2009, the collapse of Lehman Brothers and the bailout of Bear Stearns reaffirmed the importance of the fundamental principle of:

A.

superior

 

managemen

t.

 

B.

globalization.

C.

government bailout.

D.

regulatory arbitrage.

E.

public trust and confidence in the system.

 

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88.

Which of the following is an example of a commercial bank?

A.

State and local government retirement funds

B.

Foreign banking offices in the United States

C.

Finance and mortgage companies

D.

Property/casualty and other insurers

E.

Mutual funds

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89.

Which of the following reasons leads to an implication that traditional banking is dying?

A.

Decrease in number of branches

B.

Increased restructuring of loans

C.

Degradation of market share

D.

Reduction of public trust and confidence in the system.

E.

Increase in risky arbitrage services

 

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90.

Which one of the following nonbank financial- service institutions sell shares to the public representing an interest in a professionally managed pool of stocks, bonds, and other securities?

A.

Security brokers and dealers

B.

Investment banks

C.

Finance companies

D.

Mutual funds

E.

Hedge funds

 

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91.

Which of the following activities do the banks perform as dealers in arranging for risk protection for customers from third parties?

A.

Hedging services

B.

Merchant banking services

C.

Investment banking services

92.

D. Mutual funds services

E. Security underwriting services

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Which of the following are the implied motivators of reforms that have taken place in the banking sector since the credit crisis of 2007-2009?

A.

Increased

liquidity

B.

Increased dominance of the largest financial firms

C.

Increased disclosure of credit charges and other consu

D.

Increased number of bank branches

E. Increased speed of innovation and invention

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